tv Nightly Business Report PBS October 12, 2011 1:00am-1:30am PDT
>> loans in the united states and really throughout the world now are not growing overall. that means the core business that banks are doing isn't growing. >> tom: analysts say banks are the big worry heading into earnings season. profits are being pinched by fewer loans and a drop in trading revenues. >> susie: meanwhile, lower aluminum prices bring lower profits for alcoa, with its latest results missing the mark. alcoa c.e.o. klaus kleinfeld joins us with an update. it's "nightly business report" for tuesday, october 11. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. a bad start to earnings season-- late today, alcoa posted a skimpy profit that was much lower than expected. the aluminum giant is the first dow component to report and, susie, investors are worried that this a is bad omen for upcoming quarterly results. >> susie: tom, investors were disappointed-- alcoa reported right after the closing bell, and the stock fell more than 3.5% following the earnings release. here's why-- the company earned 15 cents a share in the third quarter, up from a year ago, but
seven cents below analysts' estimates. alcoa blamed it on a big drop in aluminum prices and slow economic growth. revenues came in slightly ahead of estimates, up 21% to $6.4 billion. joining us now to discuss those results-- klaus kleinfeld, chairman and c.e.o. of alcoa. and, klaus, so nice to have you back on the program. >> good to be here, susie. >> susie: based on what you saw in the third quarter, what can you tell us about the outlook for alcoa's earnings for the rest of the year and into 2012? >> well, i think first you have to see that, as you just said, earnings and revenues are up year on year, down quarter on quarter, and the impact is clearly two things. the one thing is the drop of the metal price, and the second thing is that we clearly see the euro zone coming down. at the same time, we do see the end market demand and most of
the end markets pretty strong. we actually continue to believe that this year's growth in the aluminum demand is going to be 12%. we upped our demand forecast for china up to 17% from 15% originally. currently i'm more worried about the lack of confidence than the situation. confidence sucks the air out of every economy, and it can create one of the largest self-fulfilling prophesies that i've seen in my business lifetime. >> uh-huh. well, still your first test is pretty upbeat. given that aluminum prices are down something like 20% over just the last three months, isn't that a signal that the economy is slowing down and maybe that we're heading into a recession? so what is that going to mean for your business? >> no, it's really not. i mean, the interesting thing is we do see continuous demand. it's a very different picture from the picture in 2008. in 2008 we saw demand. at the same time we saw that the regional premiums going down,
and we see today demand continues to increase, continues to grow. we also see the regional premiums are continuing to hold up. metal prices coming down, like in 2008, 2009, but here this year it's driven bay chris by speculators betting against the economy and using aluminum as a proxy for that. >> so what are your customers telling you? alcoa services the auto industry, soda cans, aerospace. are their orders coming in still pretty strong? >> absolutely, absolutely. and aerospace, we just had a fantastic news when abbott and boeing decided for major-selling airplane, the boeing 737 as well as the airbus 320 to come out with new products and they're all aluminum based and the major part is alcoa aluminum. we've seen in the auto industry, fuel efficiency regulations coming in and the white house now has a proposal out that's going the ramp that up even morement we have no major
customer in the automotive industry who is not having a major problem. >> what about in europe? what can you tell us about the economic outlook there giving all of the debt crisis that the region is going through? >> well, i think it's very unfortunate what happens in europe because the discussion in europe is continuing too long and it's creating a lot of... destroying a lot of confidence, and we actually do see that it has a physical impact. europe is the only regional place where we do see demand all across the board, and we saw slow august and july, which is kind of normal in europe, given the vacation time, but then nothing came back in september. and the unfortunate thing is these things are all involvable. the europeans think it's involvable and obviously the stalemate doesn't help in creating the confidence. >> talk about alcoa stock. it's been down quite a bit so far this year, 35% and down in after-hours trading today.
what can you tell investors? are you considering anything like a stock buy-back or a dividend increase? >> well, the thing i can tell you, i can't project where the market is going to go, but i can tell you alcoa today is much stronger than it was in 2008/2009. we're prepared, we're tested, we're trained to go through a downturn. we know what it takes to generate cash. we can do that and bring out the toolbox that we had at that time. at this point in time, the markets are so strong. let me get that message across. most of the markets are strong and we continue to ill loom news the world. that's still there. we're prepared. we're a stronger company. we have a stronger balance sheet. we have good cash reserves an we're ready to implement whatever the world brings, be it opportunities or challenges. >> what a great attitude, very refreshing. thank you so much, klaus, for coming on the program. enjoy talking to you as always. >> my pleasure. >> susie: and we've been speaking with klaus kleinfeld, the chairman and c.e.o. of alcoa.
>> tom: meanwhile, investors are bracing for terrible earnings from the nation's big banks. j.p. morgan gets it started, reporting earnings thursday. as a group, financials are expected to post the slowest revenue growth of any sector, and its earnings are expected to rise less than 7% from a year ago. that's just half the gain of the market as a whole. erika miller takes a closer look at what went wrong. >> reporter: the protesters that have spent weeks occupying wall street are a visible thorn in the side of the firms doing business there. but there are plenty of other issues directly hurting profits at banks and brokerages. just ask goldman sachs, where third-quarter earnings expectations have plunged 96%. at the start of the quarter, the consensus forecast was for earnings of $3.62 cents a share; now, it's a paltry 13 cents. for many big banks, the biggest issue is declining trading revenues. >> that is a reflection of
uncertainty coming from europe and coming from heightened u.s. fears of a recession. >> reporter: in addition, wild swings in financial markets have prompted many business customers to table stock and bond offerings, as well as acquisitions. lower profits are not just bad news for wall street firms and the people who work there; they will have ripple effects throughout the local economy. by one estimate, new york city could lose 10,000 additional securities jobs by the end of next year. that would bring the total job losses on wall street to 32,000 since january 2008. weak bank earnings are also hurting investors in those stocks. the kbw bank stocks index is down nearly 20% in the past three months. that said, one analyst sees a few good buys. >> suntrust, u.s. bancorp, fifth third should start to outperform during the rest of the year because there's tremendous value in those good core franchises in the u.s. right now.
>> reporter: the third quarter was clearly a terrible one for banks. but the focus now is on the fourth. a big concern is how exposed u.s. banks are to european debt problems, particularly through complex derivative trades. erika miller, "nightly business report," new york. >> susie: the banking industry is also facing much tighter regulations on high-risk trading. today, u.s. regulators released their draft of the "volcker rule," named after former federal reserve chairman paul volcker. the proposal ban's banks from trading for their own profit, and regulators are now asking the public for feedback on the best way to do that. washington bureau chief darren gersh reports. >> reporter: the volcker rule is supposed to keep banks from using taxpayer-insured deposits to place risky bets to boost profits. and in some ways, it has already accomplished its goal. >> many banks have already sold off their prop desk, have sold off their private equity desk. it's changed behavior-- before, it was even issued, it changed behavior.
and banks are pouring over the proposals right now to see where are the lines-- what can we do for our clients, what risk management and asset management services can we still provide for our clients, and what can we no longer provide? >> reporter: one thing banks will have to do-- keep much better data on how they trade and why, so regulators can enforce the new rule. >> the metrics would provide a valuable source of information on trading activities in large banking organizations, and should help regulators enforce the volcker rule in a consistent manner. >> reporter: but the rule also grants exemptions for some trading banks say they do for their clients. some worry that could create a loophole. >> i think a lot of people view that as, potentially, a problem, as well-- that you will have these huge loopholes that you can drive, you know, a trillion- dollar truck through. >> reporter: given how difficult it's been for regulators to define proprietary trading, the impact on profits is not easy to gauge, though some think it will be small. >> proprietary trading might have accounted for 5% of the
excessive losses for the last couple of years. it's really a sideshow compared to the bigger issues. >> reporter: this is such a complicated issue, regulators are allowing more time for the industry and public to comment on the proposed rule. a final rule is still a long ways off. darren gersh, "nightly business report," washington. >> susie: still ahead on the program: "beyond the scoreboard" takes on the nba lockout. we look at what basketball's labor dispute could cost one expansion town. >> tom: stock gains were kept in check today, thanks to a holdup in boosting europe's bailout fund. slovakia rejected expanding the fund. its government also received a no confidence vote. slovakia is the poorest of the euro-zone's 17 members, and the only one against expanding the bailout fund. the dow fell almost 17 points, the nasdaq gained that much, and the s&p 500 was up a fraction. trading volume rose a bit from yesterday's pace-- 881 million shares moving on the big board, and 1.7 billion on the nasdaq.
stuart schweitzer is the global market strategist at j.p. morgan private bank. stu, welcome back to the program, you heard from the c.e.o. from alcoa kicking off earnings season, asking for more confidence in the world. where's it going to come from, do you think? >> oh, i think, face it, what the public wants is normal growth, but after two and a half decades of more rapid-than-normal growth in borrowing in america and a prolonged period of excessive borrowing by governments if europe, the prospect of normal growth is some distance away. if we just think about the u.s., there are two problems. number one construction, which is always played a leading role as a catalyst for the economy coming out of recession. the consumer, which isn't able to borrow doesn't want to borrow the way consumers haven't in the past. also, although not missing in action, is running at half speed, so i think we have to expect that growth will be slower here in america.
i agree with mr. kleinfeld of alcoa that companies are in really an incredibly strong position relative to the shape that the economy is in. they're managing their costs very well. hopefully that will lead to better outcomes on earnings than alcoa was able to do today, but i stress that alcoa's problem on the earnings front really came from europe, and that's the big question. >> tom: let's tackle that here. you talk about domestic headwinds in the u.s. in terms of construction and consumers looking for export growth. the rejection from slovakia notwithstanding, the confidence out of europe has been building that they can fix this problem. is that confidence sustainable? >> well, you know, i'm reminded, tom, of the cartoon that runs every fall it seems in the peanuts cartoon that runs every fall where charlie brown is ready to kick the football, and lucy says, "this time i'm going the leave it there," and every
time he steps up to kick the ball, she pulls it back. we've had something similar from the european authority. every time there is a plan, the market says, i like the idea. and then so far at least, the delivery on those ideas has been limited. so now we have again mr. sarkozy and angela merkel of germany agreeing on sunday that what they need to be doing is recapitalizing the banks. >> tom: is it enough? >> pardon? >> tom: is it enough? >> i don't think it's enough, but by itself it would be a great start. and yet the question is how are they going to do that? in the end, by the time of the delivery date so to speak that's been projected for the grand plan november 3rd and 4th, will the plan really look so grand? i don't know, but i do think that's the critical issue because this is the banking system issue as well as a sovereign debt issue in europe. >> tom: stu, just 20 seconds
left. with that kind of oversight, that environment, where do you look for profits before the end of the year if you're an investor? >> well, i think you have to be diversified. i think that means taking advantage of some of the gifts the market has given us by selling off. so, for example, credit, high yield for example has sold off heavily, and if companies are really in good shape, then i would expect that high yield and leverage loans and extended credit, some of the riskier things on the credit spectrum, but quality end of the risk has the potential to pay off. i also like asian equity and debt. >> all right, stu. we'll leave it there. we appreciate the idea. stuart schweitzer, always great to hear from you. he's with us tonight from jpmorgan private bank. >> thank you. >> susie: and here's an update of the >> susie: the "occupy wall street movement" moved uptown today. protestors went door to door, visiting the homes of new york city's super wealthy, calling it the "billionaire's march". protestors paraded through posh upper east side neighborhoods, stopping at the homes of some of
the city's wealthiest residents, including j.p. morgan c.e.o. jamie dimon and news corp c.e.o. rupert murdoch. the march was highlighted by shouts of "we are the 99%," referring to the movement's theme that 1% of the population controls too much of the nation's wealth. >> as investors awaited the number from alcoa after the close, kind of a quiet trading day. let's get you updated with tonight's market focus. a mixed close for the major indices with no real direction today. the dow industrial average highlights the choppy price action we saw throughout the session. but after weeks of triple-digit swings, today's 85-point range was the narrowest since late july. investors were not feeling
particularly defensive today. the utility sector saw the biggest losses, down more than 1%. telecom services also fell 1%. buyers had an appetite for growth sectors. technology was the best, up just over a half-percent. leading tech stocks was software firm citrix systems. it makes the go-to-meeting software. today's 5.5% gain breaks the stock out of the range it has been trading in since the summer sell-off. previous quarterly earnings saw big growth. it hasn't announced an earnings date yet. even though telecom stocks were weak today, sprint saw a bounce. shares jumped more than 7%. volume doubled. sprint joins the apple iphone business soon, and it has sold the stock has been under significant pressure because of the financial commitment to buy iphones and upgrade its network.
it has sold out of its initial stock available for pre-orders. we've got an update tonight on the long battle to buy car rental company dollar thrifty. dollar thrifty today said it received no acceptable offers by its self-imposed deadline, yesterday. but hertz says it still wants to buy it. hertz is the only interested bidder after avis dropped its effort. one challenge is meeting anti- trust worries. dollar thrifty stock fell to just above $59 per share. hertz has offered about $66 per share for the company. hertz was up more than 1%. meantime, 99 cents only stores will go private in a buyout. two buyers are teaming up, offering $22 per share, trumping a previous private equity bid that came in at just over $19 per share. the stock hit a new 52-week on the higher offer. in commodities, the grains saw the buying action today. wheat, corn and soybeans all jumped. the u.s. ag department updates its corn and soybean harvest forecasts tomorrow. and that's tonight's "market focus."
>> susie: the first two weeks of the nba season will not tip off as contract talks continue between players and owners. 100 games have been scrapped, costing more than $83 million in lost tickets sales. oklahoma city has been a nba hometown for only three seasons, but the effort to bring pro basketball there began in 1993. rick horrow served as a consultant on that effort. in tonight's beyond the scoreboard, horrow talks with former oklahoma city mayor ron norick about the impact of losing basketball, beginning with why the city worked so hard to land an nba team. >> when the tragedy of katrina, hurricane irene hit new orleans, it really opened up the door for us because we invited the new orleans hornets to come in and make this their temporary home while they rebuilt their building, and it gave our community a chance to showcase
what we crowd offer to the league and to the other teams, and it worked, and we've just been going up ever since. and this city supports the thunder like crazy. i mean, this is a football state, but right now it's also a basketball state. >> you had a study that talked about $100 plus million of economic impact when the hornets came post-katrina, and now the thunder is the same kind of economic impact. how do you replace that? >> i don't think you do replace it. that's the problem. there was a big article in our paper this week, and it talked about who is really getting hurt on this is the little guy. it's the guy that has the local bar or restaurant or some of the hoteliers on the weekends. it's the taxi drivers. it's all of these kind of people. those are the ones who are getting hurt. the direct impact for the city alone is $1.2 million per game. so, you know, if we were having to lose the whole season, you know, that's a huge impact.
i think it will be tough to get the fan base back and tv market back. i hope they think long and hard on the talks. >> indirect economic impact on the image and on oklahoma city itself clearly hard to replace. >> you can look on any sports broadcast, any national newspaper, any local newspaper and you're going to see the name oklahoma city either scrolling across the bottom of the screen or talked about. that's what you get. and you cannot buy that publicity or advertising. that's just... you just can't replace it. you can't buy it. and, you know, we'll all miss that. >> is this lockout and the stoppage of play, will it cost jobs and how does oklahoma city compensate. >> absolutely it's going to cost jobs. you're going to have a tough time replacing 40 home games. i don't care what you do. that would be a tough time. so, yes, it's going to be a hit, but it's going to be a hit to all of the cities. >> former mayor ron norick, thank you for joining us on "nightly business report."
>> tom: here's what what's on tap tomorrow: we'll see the minutes from the federal reserve's september meeting when it launched a new bond buying effort. third quarter earnings are due from pepsico. and general motors unveils a new electric vehicle called the spark. also tomorrow, hilary kramer is back as our "street critique" guest. email your questions to email@example.com. >> susie: shares of american airlines parent amr rose 7% today on word the carrier is cutting flights. american said it's trimming capacity by 3% because of the weak economy and high jet fuel costs. but analysts say the capacity cuts will do little to return the airline to profitability in the fourth quarter. just a week ago, investors dumped amr shares on worries the airline could file for bankruptcy. >> tom: more service problems for blackberry users outside the u.s.. problems that began in europe, the middle east and africa yesterday now have spread to research in motion's networks in latin america and india. rimm blames a switch failure for
>> susie: more now on the nation's big banks. with their earnings under pressure from new regulations, tonight's commentator says it's time for consumers to think differently about banking. he's daniel gross, columnist and economics editor at yahoo finance. >> an uproar ensued recently when bank of america said it would impose monthly fees on account holders who use debit cards-- a clarifying uproar. the bank blamed new regulations, but it needs the cash to make up for billions of dollars in mortgage losses, and to pay for its massive overhead-- the thousands of bank branches, but also the fancy offices, corporate jets, and multi- million dollar salaries. banks gave away the convenience of free checking, online bill payment, and ubiquitous branches because they made up those costs in mortgages and investment banking, two areas that blew up in 2008 and have since withered. faced with the real costs of retail banking, many customers may decide that the convenience is worth it, or-- and this is my hope-- they'll turn to alternatives. this is an opportunity for the
hundreds of smaller community banks and credit unions-- you know, the ones that didn't require bailouts and that still offer free services-- to gain market share from bigger rivals. and new business models, online banking, mobile payments, prepaid debit cards-- all of which render the old bricks-and- mortar model obsolete-- will likely get a boost. the banking system may be dysfunctional, but markets and banking can still work. i'm daniel gross. >> susie: that's "nightly business report" for tuesday, october 11. i'm susie gharib. good night, everyone, and good night to you, too, tom. >> tom: good night, susie. i'm tom hudson. good night, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by:
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